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The Cash Flow Conundrum

Why budgeting cash flow is critical to business success

Your company's cash flow is the lifeblood of your business. If managed successfully, it can help you overcome business downturns and capitalize on opportunities for growth. Yet why is it that so many business owners don't take the time to manage their cash flow until they experience cash flow problems?

Though there are certainly many time-consuming tasks involved with running a business, managing cash flow doesn't have to be one of them - that is, if you have a good system in place and stick to a cash flow budget. Here are a few simple ways to make that happen:

Understand the importance of cash flow.

Many business owners are so involved with managing the day-to-day tasks of running their businesses that they forget how important cash flow is to their stability. The secret of cash flow management is simple: you need to have money on hand to cover expenses, day in and day out. Poor cash flow can result in loss of discounts to your business or even bankruptcy, while well-managed cash flow can allow you to invest excess funds and build a nest egg to grow your business.

Set a cash flow target.

The amount of money you need to cover expenses will depend on several factors, including your sales, expenses and the seasonality of your business. It's critical that you take some time each month to project expenses and potential sales.

Collect your receivables as quickly as possible.

The most fundamental part of cash flow is collecting money owed to you. As such, you will need a system in place to ensure that your billing and collections processes are operating efficiently. Some steps you can take to do so include:

Getting customers to pay you sooner by offering discounts

Requiring up-front deposits

Accepting electronic payments

Utilizing cash management services that process your receivables faster Taking advantage of technology and services such as remote deposit capture, which allows you to deposit checks from your office using a scanner

Manage seasonal cash flow.

If you have a business with seasonal income, you may need to apply for a line of credit to help you augment cash flow during slower periods. This working capital will allow you to pay your bills in the off-season. Because it's a line of credit, you can borrow and pay back your line on an ongoing basis without having to apply for a loan every time you are short on cash.

Monitor your cash flow throughout the day. Knowledge truly is power. Services like online, mobile and telephone banking make it easy for you to set alerts and to determine what's happening in your account on a day-to-day basis.

Generate financial statements.

One of the biggest mistakes businesses make is not running financial statements such as balance sheets and profit and loss statements to determine what's happening with their cash flow. If you do so on a regular basis, you'll be able to identify where you need to increase income and to decrease expense, before it's too late.

Invest excess funds.

If you have an excess of cash flow, it's a good idea to put excess funds to work for you with services such as sweep accounts that allow you to set a target balance in your business checking account, automatically invest your excess cash in overnight investment vehicles and automatically return funds to the account if your balance falls below the target.

As a financial institution that's committed to business, we can help you manage and monitor your cash flow more efficiently. To discuss your specific needs, stop by your nearest branch or call us. You'll be glad you did.